Optimizing Your Benefits During a Job Transition: Part II

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Starting a new job is exciting—it usually means opportunity for growth, often in more ways than one. One of the challenges of transitioning jobs, though, is determining how to maximize your benefits—both those from your previous job and those at your new place of employment.

There are lots of factors to consider when reviewing your benefits, which is why we recommend talking with your advisor during the process. Someone who knows your long-term goals and values can help you see the bigger picture and decide what’s best when it comes to keeping old plans or leveraging new ones.

For now, let’s review some potential benefit options when transitioning jobs—specifically, what you can do with a 401(k), a pension, stocks, and other investment opportunities*.

401(k), 403(b) or other ERISA plan

If you leave a company where you have a 401(k) or other employer-sponsored retirement plan, you can do one of three things with the money in your account:

  • Leave the balance in your previous employer’s plan 
  • Transfer the balance into your new employer-sponsored plan (if you have one)
  • Transfer the money into an IRA, where you’ll have other investment options that may not be available in the plan.

One thing to note about company contributions is that they may vest right away, or they may be subject to a vesting schedule. If there is a vesting schedule, some or all of the money your employer contributed may not be yours if you leave the company before it vests.

For example, if the plan has three-year cliff vesting, employer contributions are fully vested after three years, or if it has gradual vesting, vesting of employer contributions may take between two to six years.

So, if you worked at a company with a three-year cliff vest and decided to move on after four years, you’d be able to keep the employer contributions. But if that same company had a five-year equal percentage graded vesting schedule, you may only be able to keep 80 percent of their contributions when you leave.

Pensions

The two most common pension plans companies offer are defined benefit plans and cash balance plans, which is a type of defined benefit plan. Depending on which one you had (or have), you’ll have different options when you move to a new company.

Cash Balance

Cash balance plans allow you to keep your pension plan as-is or roll over your account balance into an IRA. If you’re considering transferring the balance, there are a couple steps you should take first:

  1. Request an analysis that shows the estimated value of your plan at the age you plan to retire. (So if you’re 55 and want to retire at 65, request an estimate of what the value would be in ten years.) 
  2. Once you have this value, you can compare those estimated returns to what you might earn if you invested in different vehicles through an IRA. Then you can decide whether it makes sense to keep your plan as-is or transfer it to an IRA.

Whichever way you’re leaning, we recommend reviewing your options with an advisor to determine which strategy will best support your overall goals.

Defined Benefit

A cash balance plan may or may not allow you to take a lump sum at retirement. We suggest keeping a record of this plan year-over-year and requesting an estimate of what your monthly payment will be when you retire. Ask your company or plan provider when you can start withdrawing income from your account—some plans specify an age when you have to take distributions (e.g., 65) but others let you take them sooner. 

Stock Options      

If your current company offers stock compensation, you’ll likely have a few different options when you leave the company. It’s important to reference your specific plan documents before you make any decisions, since the rules regarding stocks vary from company to company. Generally speaking, though, employees have up to 90 days after termination to exercise their vested stock options; after that, unvested options are typically forfeited.

Stocks are one of the more complicated benefits to navigate when leaving a job. Every company has different rules, and your options might vary depending on how long you’ve been at the company. If you have the flexibility, it might make sense to delay your departure until all your stock options are fully vested. There are many factors to consider, which is why we recommend discussing your options with a financial planner who’s well versed in this area. 

Restricted Stock Options

Just like other stock options, restricted stock and restricted stock units (aka RSUs) can get tricky when you leave a company. Typically, an employee can keep the vested portion of their restricted stock or RSUs when they leave a company, but they’ll have to forfeit any unvested shares. Again, it’s vital that you reference your plan documents because the rules vary from company to company. From there, you’ll want to talk to a financial professional about the best way to leverage your particular benefits. 

Have Questions?

There are lots of things to consider when you change jobs, and navigating your benefit plans can be complicated. That’s why no matter what benefits you have, it’s best to lean on a financial professional so they can help you make the best decisions for your unique needs. If you’re changing jobs and have questions about your finances, we’d love to help—our goal is to help you protect everything you’ve worked for and make the most of your new opportunities.

*When considering rollover over the proceeds of your retirement plan to another tax-qualified option, such as an IRA, please note that you may have the option of leaving the funds in your existing plan or transferring them into a new employer’s plan. You may wish to consult with your new employer, if any, to learn more about the options available to you under your plan and any applicable fees and expenses. You may owe taxes if you withdraw funds from the plan. Please consult a tax advisor before withdrawing funds. Neither Strata Capital, [NYLIFE Securities LLC and its affiliates], nor its representatives, provides tax, legal or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.

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